Audit Committees: SEC Approves New PCAOB Auditing Standard Relating to Communications Between Auditors and Audit Committees

Sullivan & Cromwell LLP - January 2, 2013

The U.S. Securities and Exchange Commission has approved Auditing Standard No. 16, Communications with Audit Committees, in the form adopted by the Public Company Accounting Oversight Board in August 2012. As anticipated, the new standard will be effective for audits and quarterly reviews for fiscal years beginning on or after December 15, 2012. The SEC also approved the PCAOB’s transitional amendment that makes the existing auditor communication requirements applicable to the audits of SEC-registered brokers and dealers if the SEC’s proposal to subject broker-dealer audits to PCAOB standards is adopted and goes into effect before the new PCAOB standard is effective.

The approval of this standard required the SEC, for the first time, to engage in the determination called for by the Jumpstart Our Business Startups Act as to whether the application of a new PCAOB standard to “emerging growth companies” is necessary or appropriate in the public interest. Consistent with the position of the PCAOB, the SEC determined to apply the standard to emerging growth companies. The SEC’s approval order contains a discussion of the SEC’s analysis, including the SEC’s responses to contrary arguments made in a comment letter submitted by the U.S. Chamber of Commerce.